With Android adoption about to "explode," Google is betting on mobile advertising.
Google on Monday said that it had agreed to acquire AdMob, a mobile display advertising provider based in San Mateo, Calif., for $750 million.
In the face of heightened regulatory scrutiny from the Department of Justice, the Federal Communications Commission, and the Federal Trade Commission, Google is characterizing the deal as a catalyst of new innovation and competition in the mobile advertising market.
The acquisition is Google's third this year. In August, Google bought On2 Technologies, a video technology company. And in September, Google acquired reCAPTCHA, an anti-spam security company.
In its October earnings call, Google CEO Eric Schmidt said that the company was looking to invest in long-term growth, and would be hiring new people and seeking to acquire companies. He said that Google had in recent years been acquiring about one company a month. He also said smaller companies that had built promising search or advertising solutions would be likely candidates for consideration.
Google expects mobile searches to grow significantly in the years ahead. Schmidt in October said that the number of mobile searches had risen 30% in Google's third quarter. He also said that adoption of Google's Android platform "is literally about to explode."
Mobile ad spending is estimated to reach $416 million in 2009, 0.4% of all ad spending, according to eMarketer.
Peter Farago, VP of marketing for Flurry, a competing mobile advertising company, sees the deal as a validation of the mobile advertising market and expects major ad networks and brands to look for ways into the space.
"Flurry agrees that this transaction will force companies like Microsoft, Yahoo, eBay (which recently announced it had made $400 million from its mobile app), Amazon, and Adobe (which just reiterated its commitment to mobile via Omniture) to think about how to best take advantage of the mobile economy," he said in an e-mail. "Advertising is one way, in which Google is specifically interested. There are also several other meaningful ways to engage with consumer through applications (e.g., sales of virtual goods), but it all starts with understanding user behavior through reliable data, around which companies like Flurry have built up significant competence."
Andrew Frank, VP at Gartner Research, concurs about the likelihood that this deal will prompt Google's competitors to seek similar acquisitions. "I think you might see some additional consolidation from the usual suspects," he said, pointing to Microsoft and Yahoo.
The AdMob acquisition may have some impact on the iPhone developer community, given that AdMob's network is widely to support iPhone applications, but Frank says he wouldn't read too much into the deal in terms of Google's relationship with Apple.
Frank says that the acquisition rounds out Google's advertising portfolio. Google's DoubleClick has put mobile ad serving into its products. "But what DoubleClick didn't do is develop an ad network of its own," he said.
Google has also been serving AdWords text ads on mobile devices. With AdMob, Google is strengthening its mobile display ad capabilities.
Frank describes the deal as a bet on growth.
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